Home-based e-business - an option for the self-employed?

3.2. Selling Physical products

In this scenario, physical products are sold through the Internet, either through auction sites such as eBay [11] or through a fully-fledged e-shopping web site. Amazon.com is an archetypal e-shopping site. It started selling books initially but is now a fully-fledged online department store. Selling physical products will come as second to many in Hong Kong . Hong Kong has been a major trading port with imports, exports, and re-exports accounting for an important part of its GDP. Its close proximity to China means that it had access to one of the greatest sources of manufactured products in the world. Its proximity to other major manufacturing nations in Asia, such as Japan, Korea, Taiwan, Singapore and other Asian countries means that there is an abundance of imported products from these countries which are suitable for re-export. Besides having access to an abundant supply of manufactured goods, the postal and courier services from Hong Kong are highly efficient which make it highly suitable as a base for mail order companies that ship internationally. In this section, selling physical products through online auctions and selling them through a fully-fledged online shop are examined.

3.2.1. Auction Sites

The simplest way to sale physical products online is to list them in an auction site such as eBay [11]. It is not difficult to make a profit from buying and selling in auction sites but one will need to do some research. It is better to either select some rare item that people are willing to bid at a higher price, or some hot items that offer a lower than market price. The main advantage of selling through auction sites is that very little technical knowledge is required. One does not even need a web site or carry out other forms of promotion. The only requirement to sell through an auction site is a valid e-mail address. However, the way that the item is presented i.e. pictures and description, may affect the final price realized by the auction. Many traders sell their products through auctions exclusively, whereas others use auctions as means of generating traffic to their site. Traders can also use auction sites to test the market response to individual products.

eBay [11] is by far the most popular auction site and is an online marketplace that creates a powerful platform for the sale of goods and services by individuals and businesses. There are millions of items across thousands of categories for sale on eBay and it is an easy to use auction site. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Sellers have to pay fees for listing their products and selling their products through eBay. Fraud protection is provided by eBay up to a value of US$250. There are a lot of options and strategies available for selling on eBay and other auction sites in terms of setting the open bid price, whether or not to set a reserve price, multiple item auction, and to pay more to eBay for extra exposure. Which is the best approach depends on the individual product and experience has to be gained through trial and error.

The charges levied by eBay on the seller are quite high, especially for low value items. If the seller chooses to accept payment via credit card through PayPal or other payment processors, then the final fees could be as high as 10% for items below US$25. Moreover, prices realized through eBay are usually at a marked discount to comparable products sold in online shops. Therefore the selection of the products is paramount to success in eBay. In general pre-owned items tend to do better than new items as pre-owned items have hard to compare prices. Collectible items such as pottery, porcelain, old toys or watches also do quite well on eBay.

A winning bidder or seller in an eBay transaction can leave feedback for other users. This is the only means by which a prospective buyer can judge the reliability of the seller. These comments can be positive, neutral, or negative, depending on your experience. Every eBay member has a feedback profile, this is an important detail when it comes to avoid being cheated upon. Therefore, it does take time for an individual to build up his reputation on eBay.

Individuals who wish to sell a quantity of product will use Multiple Item Auctions (Dutch Auctions). However, one has to be resident in the U.S. or have a feedback Rating of 50 or above. This makes it difficult for newcomers to eBay in Hong Kong who wish to sell a large quantity of a particular item in one go. The US$250 guarantee provided by eBay against fraud is vital as a confidence building measure for both sellers and bidders. Recently, eBay acquired PayPal, which is the most commonly used means of payment at auctions. This should lead to an enhancement of the service provided by eBay.

3.2.2. Online Shop

The most important decision is in selecting the product for sale. Products that sell well on the Internet are usually either rare, or at a marked discount to street prices. They should be easily recognizable to the customer so that he will know what he is buying without seeing and handling the items, unlike jewelry and clothes. The items should preferably be small and light in weight so that they can be posted easily. The price of the product should preferably be between US$20 to US$250, because if the price is too low, then it would not be worth the effort as substantial time is required in processing the order. Conversely, if the price is too high, the risk to the retailer is increased. Moreover, many prospective customers are unwilling to spend large amounts of money online because of fears over credit card fraud.

The advantages of running an online shop is that it markedly diminishes the need to keep a large inventory of products. Provided that reliable suppliers can be found, it is possible to operate the business on a just-in-time inventory basis so that goods are only ordered from the supplier when there are actual orders from customers. However, more often than not, suppliers do require their customers to keep substantial stock and thus a fair amount of risk. There is also a certain amount of risk from orders lost through the post. In the author's experience, the rate is well less than 0.5% for orders sent by registered mail but substantially more for those that are not. Orders sent by courier reach their destinations much faster and are less likely to be lost, but are much more expensive in terms of shipping costs. There is substantial risk arising from credit card fraud. In general, web sites that sell items with a broad appeal that can be easily resold e.g. cellular phone and flash memory are much more susceptible to credit card fraud. Whereas those that sell products to professionals are much less susceptible. However with practice, it is quite easy to detect the majority of fraudulent transactions.

Drop-shipping

Another possibility is to use drop-shippers i.e. order from wholesale companies who will drop-ship to your customers. The advantage of this approach would be that there is no stock to carry and thus no financial risk of unsold inventory. However, the suppliers normally charge a high price for drop-shipping and thus the profit margins would be lower. Moreover, unless the drop-shipper agrees to use the merchant's own company logo, there is a chance that they may steal the customer. Many users have also complained of a high entry fee charged by drop-shippers and have even been scammed in the process.